Debt consolidation can be a good idea for a consumer that is strapped with a lot of debt e.g. credit card debts. This means that the individual consumer has had his debts put into one bill or consolidated his bills and he pays one monthly payment. There are different types of debt consolidation: debt consolidation loans, credit counseling, and balance transfers.
When a consumer is distressed about his finances he can go to a debt management company and get the counselor to address getting his unsecured debt restructured. The company will then take a monthly payment from the client and pay his creditors. The deal the counselor strikes with the client is called a debt relief plan. These plans do several things for the client: reduce or eliminate interest rates, terminate late fees, and lower monthly payments.
The consumer’s credit cards can be transferred to cards with lower rates as long as the new rates don’t rise a great deal in a few months. Therefore, he should be careful about introductory rates. If the consumer already has a card that has a low interest rate he could have the balance of a high interest rate card transferred to his lower one. The consumer may not be able to get the full balance transferred. He should take note of whether or not a transfer fee is involved and if it is high or low.
Another way for a consumer to consolidate his debt is with a consolidation loan. It can be unsecured meaning no collateral is called for or secured meaning he must have some collateral. The consumer trades several debts for one debt and needs to see if the interest rate is lower than what he is already paying. He should also consider the term of the loan and the payment to see if this will work for him. It could save him money while he is paying the loan (life of the loan). If the interest rate and term are in his favor.
While he is consolidating his debt the consumer would be wise to close his credit card accounts. Though leaving one open for emergencies is a good idea if he doesn’t use it for other purposes. He can easily do this if he gets a loan to pay off the others. Closing those other accounts will give lenders in the future a good impression.
When the consumer can’t get a loan from a credit union or bank he may consider a finance company, but he should be careful. There could be extra fees included in the deal, the interest will probably be high, and the tern might be long. All of these things would have a negative impact.
Some aspects of debt consolidation are good for anybody like closing out some credit card accounts with a credit card debt consolidation. The debtor should look his situation over very carefully and consider his options wisely. The pros and cons should all be thought out. If the pros outweigh the cons for an individual then debt consolidation is in his favor.
Post by : Hassanudden
Consolidate Student Debt
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